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      Question

      An increase in the inventory holding period, all else

      being equal, will:
      A Shorten the cash conversion cycle. Correct Answer Incorrect Answer
      B Lengthen the cash conversion cycle. Correct Answer Incorrect Answer
      C Have no effect on the cash conversion cycle. Correct Answer Incorrect Answer
      D Improve the quick ratio. Correct Answer Incorrect Answer

      Solution

      The Cash Conversion Cycle (CCC) = Days Inventory Outstanding (DIO) + Days Sales Outstanding (DSO) - Days Payable Outstanding (DPO). An increase in the inventory holding period (DIO) directly increases the CCC, meaning the company's cash is tied up in working capital for a longer time.

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